Understanding FM's new adviser Raghuram Rajan: How he can becom

• Posted by Sindhuri G August 30, 2012 - Filed in Business - 2,133 views

  To understand a man, you must understand where he is from. In the case of Raghuram Rajan, the new chief economic adviser to the government, that means not so much Bhopal, where he was born, as Chicago, where the 49-year-old economist has taught since 1991.
  
  Being an economist at the University of Chicago is not the typical kind of neutral academic post where public intellectuals perch when their friends are out of power. Fairly or unfairly, the school is deeply associated with a hardline school of free market economics. As Moscow State University was to Marxism in the Soviet days, the University of Chicago has been to a particularly influential brand of laissez-faire capitalism.
  
  Whether that is a good thing or a bad one depends to an extent on which side of the political fence you sit on. To its supporters, the University of Chicago was the cradle of a kind of a counter-reformation for capitalism in the 1970s and 1980s. When Milton Friedman, the godfather of this group, died in 2006, Margaret Thatcher saluted him as the man who "revived the economics of liberty when it had been all but forgotten. He was an intellectual freedom fighter".
  
  To their detractors, Friedman and his fellow intellectual freedom fighters have been something close to terrorists armed with calculators. Naomi Klein, in her 2007 book, The Shock Doctrine, argued that in their single-minded pursuit of unfettered free markets the Chicago Boys had actually undermined democracy and human rights everywhere from Chile in the 1970s to Russia and South Africa in the 1990s.
  
  Some academics more or less agree with her about Chicago's legacy. Joseph Stiglitz, a professor of economics at Columbia University and Nobel laureate, was quoted by Bloomberg a few years ago as saying, "The Chicago School bears the blame for providing a seeming intellectual foundation for the idea that markets are self-adjusting and the best role for government is to do nothing."
  
  All policymakers need an intellectual foundation of some kind, seeming or otherwise, and the Chicago School gave conservatives a clear game plan in the 1970s and 1980s. For Thatcher and Ronald Reagan, the Chicago School's simple anti-union, anti-regulation, and anti-tariff agenda suited an electorate disillusioned by slow growth and inflation. As the famous Thatcher campaign advertisement put it, "Labour isn't working."
  
  For the developing world, Chicago offered a similar formula for development, but more controversially, because some of those leaders were not elected. For example, Klein notes that eight of the 10 authors of a 500-page free-market programme followed by Augusto Pinochet after his 1973 coup of democratically elected socialist Salvador Allende were Chilean economists who had been trained at the University of Chicago.
  
  Why Chicago?
  
  Why would Chicago end up at the vanguard of this revolution? First, the rough and tumble of Chicago itself. Founded on a Rockefeller endowment in 1892, the university was always an institution set apart from the city, which was a blue collar metropolis, home to a variety of industries, particularly a large number of the nation's slaughterhouses, nasty work that brought in huge numbers of immigrants. The often vicious working conditions under which they suffered led to more unionisation than in many other US cities, and that in turn gave rise to a strong Democratic political machine.